Old Republic International Corp

NYSE:ORI

Earnings Call Transcript 2018-Q2

[Operator]

Good day, and welcome to the Old Republic International Second Quarter 2018 Earnings Conference Call. At this time all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at the

time for you to queue up for questions. I would like to remind everyone that this conference is being recorded.

I would now like to turn the conference over to Ms. Marilynn Meek with MWW Group. Please go ahead.

[Marilynn Meek, MWW Group]

Thank you. Good afternoon, everyone, and thank you for joining us for the Old Republic conference call to discuss second quarter 2018 results. This morning, we distributed a copy of the press release and posted a separate statistical supplement, which we assume you have seen and/or otherwise have access to during the call. Both the documents are available at our Old Republic's website, which is www.oldrepublic.com. Please be advised that this call may involve forward-looking statements, as discussed in the press release and statistical supplement dated July 26, 2018. Risks associated with these statements can be found in the company’s latest SEC filings. This afternoon’s conference call will be led by Al Zucaro, Chairman and CEO of Old Republic International Corporation; and several other senior members – senior executive members, as planned for this meeting.

At this time, I would like to turn the call over to Al Zucaro. Please go ahead, sir.

[Al Zucaro, Chairman and Chief Executive Officer]

Thank you, Marilynn, and hello to everyone from all of us at Old Republic. And as always, we are appreciative and thank you for joining us in this discussion. This time around we once again, as Marylyn just said, have several of our senior executives participating in this discussion. First Craig Smiddy who is Old Republic’s President, and he will be covering the general insurance parts of our business. Next Mark Bilbrey, who is President of our Title operation and he is covering today for Rande Yeager, who is Chairman and happens to be out of the office; and of course, Karl Mueller our CFO, who will, as he usually does comment about some of the important features of Old Republic’s financial position as well as related matters.

Just want to make sure that in anticipation of this discussion today that everyone has seen this morning’s earnings release to which we will be referring. And also as in past conference calls, we will also refer from time-to-time to some additional statistical information that we include regularly financial supplement that we post on the Old Republic website.

So looking at the overall picture of our business, we really think that the first page of the release says it all, we think in a very transparent way. And as everyone can speak our Title business, which has done a lot as always some reviews in driving Old Republic’s bottom line upstream since we – since our company emerge like many others from the great recession enduced downturn that Title is currently taking a bit of a breather and Mark will speak to that in a few minutes.

On the other hand, the General Insurance segment, which had been lagging some in the past several years, is continuing to make some headway in its contribution to earnings. And then there is a small run-off, the so called RFIG business, which consists of our mortgage guaranty and consumer credit indemnity businesses both of which have been in run off for a number of years. And both of those businesses, which are now truly delivered from the remnants of Great Recession euro difficulties, and are really performing in an unexpectedly quite stable manner.

So when we put all of this together, the consolidated businesses result, we thank shine whether we look at them from either a pre-tax or post-tax sets of lenders, although we should -- as we've done, of course, the release we should again note that and it is there -- there's loading that that the post-tax net operating income benefited a great deal from this year's 40% drop in the federal corporate income tax rate.

And we've shown among other places in the release on Page 6 of this -- that the year-over-year improvement in post-tax operating income was enhanced very significantly by this reduced tax rate. And specifically, if you do the calculations, you would see that roughly 70% and 70%, respectively of the increase in the post-tax operating improvement came from the lower tax rate with regard to the second quarter and the first half of this year.

So there you have basic overview again, based on taking a quick look at the highlights on Page 1 and on Page 6 and so far as this analysis that I just mentioned. And with this overview, now let me turn it over to Craig Smiddy, who is going to speak to and review our General Insurance business. So Craig, do you want to take over?

[Craig Smiddy, President]

Okay. Thank you, Al. Well as reflected in the release in the financial supplement, The General Insurance Group continued to see improving trends in many facets of our business. With respect to top line, we saw net premiums earned, rise by 5.1% when compared to the second quarter of '17. And year-to-date, we've seen an increase of 5.8% compared to the same period of 2017.

We experienced greater writings in most lines of coverage, especially in our commercial auto where rate increases continued to improve. On the other hand, greater writings were somewhat offset by a reduction in workers compensation writings where rates are very difficult to maintain as rating bureaus continue to force rates down in response to improving lower frequency trends.

We continued to experience strong renewal retention ratios as well as reasonable growth of new business. We're also seeing some lift in exposure growth and therefore premiums due to the improving economy.

As always, each of our underwriting operations continue to operate in a very competitive environment where the perception of excess capital and the insurance sector continues to fuel competition. But we're holding our own and in most parts of our business were experiencing strong renewal retentions and new businesses, as I indicated, which reflects that indeed we are holding our own. The group's overall composite ratio improved to just over -- for a 101% in the second quarter of 2017 to 97% for the same quarter this year. Year-to-date the composite ratio has improved from 98% to 97.4% when compared to 2017. Our group's expense ratio of 25.5% for the second quarter was slightly below the 25.6% in the quarter last year while year-to-date the expense ratio sits at 25.9% compared to 25.2% last year. As we expect, premiums will continue to grow. Our expectation is that this ratio will gradually decline although mix of business changes are also a factor that can increase the expense ratio at least temporarily.

As shown in the financial supplements on the ORI website referenced earlier, the commercial auto claim ratio declined to 75.7% this quarter compared to 79.8% this quarter last year, and year-to-date this claim ratio came in at 77.3% compared to 81.1% last year.

We haven't seen severity trends in the commercial auto coverages update. And therefore we remain very diligent to ensure that rate increases continued to offset the loss cost trends that we're experiencing. Our objective for this line of coverage remains to bring the claim ratio down to our historical experience in the low to mid-70s.

Our second quarter workers compensation claim ratio declined by 4 percentage point to 73.4% from 77.4% in the same quarter last year. Year-to-date we stand at 73% compared to 76.5% in the first half of 2017. Our general liability writings are smaller by comparison to the other coverages we write. So we typically experience more volatility quarter-to-quarter and year-to-year.

As shown in the statistical exhibit, the latest quarter's results reflect a claim ratio of 72% compared to 75.4% in the same quarter last year, while year-to-date this claim ratio came in at 71% compared to 65.9% in the same period of 2017.

All of claim ratios we report are, of course, inclusive of both favorable and unfavorable claim development. In the latest quarter we saw no favorable or unfavorable development, while year-to-date, we've experienced one percentage point of unfavorable development, and this compares to the 1.9 percentage points of unfavorable development year-to-date in 2017.

We continue to invest in people product development and infrastructure and therefore we feel very optimistic about our growth prospects. All of our underwriting units however remained very focused on underwriting discipline with the bottom line profitability focus taking priority over top line premium growth. So on this optimistic note, I’ll turn the discussion over to my colleague, Mark Bilbrey, for his comments on our Title insurance business.

[Mark Bilbrey, President of Title]

Thank, Craig. As reflected in this morning's earnings release, we’re pleased to report on the Title group's continuing success in 2018. For both the second quarter and the first half of the year, all time records were set. Total operating revenues of about $589 million for the quarter represents a 6% increase over 2017. We achieved this volume despite the fact that total revenues for mortgage originations were down 3.8% for the first half of the year according to NBA forecast.

This overall drop reflects 3.6 growth of purchasing money originations offset by a 16.9% drop in the refi order originations. Our agency business has established a new high in revenue for the quarter registering an 8% growth over the period – prior period. Of that our direct operations reflected a rise in 1.2% in revenue. For the latest quarter of available data, our national market share is also planned to 15.5% compared to 15.3% in the same time in 2017.

Pre-operating income totaled almost $61 million for the second quarter and $90 million for the first half of 2018. Both these results reflect a moderated decline from 2017, principally due to less or positive impact of favorable claim reserve developments between the periods. And offset losses continued develop in a favorable pattern that is typical show below 3% for all the periods presented. While there is no guarantee this trend will continue, and definitely we nonetheless are very optimistic in the near-term.

In summary, 2018 has been a very good year for so far for Title. With the overall housing market slightly down, we continue to make progress financially and competitively. We are approaching remainder of 2018 with cautious optimism. By the real estate market by most accounts should hope steady on the purchase side of the equation, while refinances should continue to decline relative to the total origination market, the usually higher fees for order generated in new purchase transactions, should mitigate the possible adverse impact for drop in refi revenue.

In the commercial market, we believe we will continue to make in-roads based on our expertise and our expanding customer base. In all-in-all, we remain very optimistic on the near term future as excess of Old Republic Title business.

We’ll be happy to answer any questions anyone may have during the question and answer period. In the mean time I’d like to turn the call back to Al Zucaro.

[Al Zucaro, Chairman and Chief Executive Officer]

Okay. I think we just need to say a few words as necessary with regard to the RFIG run-off business. And as you can see in the release, it shows that both parts of this segment mainly the MI portion, mortgage insurance and the CCI portion, consumer credit integrity, that both of these parts are now reflecting a very stable situation. And we think that as long as the economy remains on an even keel with good employment and reasonable mortgage rates there we should continue to witness this -- a continuation of this very stable situation.

Now admittedly MI margins should obviously decline gradually as infrastructure and maintenance costs become, again, gradually misaligned with a decline in the top line. But having said that we're still anticipating posting positive go again declining earnings as the MI business closes in to the ultimate extinction of the policies and force. And most of these should be extinct -- at least the vast majority should be extinct by 2022 or thereabouts.

But I feel then, just as we've experienced in the last couple of years, in particular, the MI capital base should still build up. And we're certain that as we've said before that we're going to be able to figure out an appropriate way to use this capital for a most beneficial long-term outcome in the interest of the many key people at Old Republic and in our mortgage guarantee business.

The Title analysis we still consider this MI business of ours to be a very most valuable and viable franchise and we think that it can be activated to great advantage in the right circumstances. And I'm sure that those will come about in the near-term. And to the smaller, the much smaller portion of the CCI business, we think that it will too mosey along in a profitable way, as it is also experiencing a quickening extinction, if you will on the number of policies in force.

As you see in the in this morning's release, it's throwing off a small profit. And we expect that to continue very like that we also have a reasonably low expense ratio for that business. So the combination of all of that should lead to positive outcomes for the foreseeable future.

I think that's the extent of comments that are necessary on this RFIG run-off business. So I think, we at this part of the discussion, where you Karl can take over.

[Karl Mueller, Chief Financial Officer]

Well, good afternoon, everyone. As usual we'll highlight a few other key elements of Old Republic's financial condition and operating results that have not already been covered elsewhere.

First of all total cash and invested assets declined to $13 billion from the $13.5 billion that we recorded at the end of 2017. The change was primarily driven by dividend payments, which include the special $1 per share dividend that was paid to our common shareholders this past January as well as the decline in net unrealized investment gains.

This was offset to a degree by the investment of positive operating cash flow, the composition to portfolio, we made relatively consistent with year-end 2017. This maturity in short-term investments make up approximately 75% of total investments. The A quality rating on the fixed maturity portfolio remains stable and the average maturity continues to be approximately four years. Investments in high-quality dividend paying equity securities makeup the remaining 25% of the overall portfolio.

Net investment income in both 2018 periods grew percentage wise by mid-single digits due primarily to higher year-over-year cost basis investment balances are relatively flat yield environment for fixed income, securities and the higher dividend income.

On a consolidated basis, claim reserves continued the trend of favorable development during the second quarter as well as the first six months of this year. This morning's release, along with the financial supplement on pages four and five, disclose the effect of prior year favorable or unfavorable claim reserve development on a reported claim ratios for all three of our primary segments stepping General, Title and the mortgage guarantee business.

As of June 30th, Old Republic's book value per share rose by 1.5% for the quarter to $17.8. Year-to-date book value per share is down 3.6%. The primary components of the change in book value are shown on Page 8 of the release. A significant contributing factor for the year-to-date drop in book value, you'll notice is the $0.86 per share decline in fair value of the investment portfolio, most of which occurred in this year's first quarter.

The debt capitalization ratios are also shown on Page 8 of the release. The lower debt ratio at the end of June is reflective of the conversion of the remaining $471 million balance of convertible notes into roughly 32 million common shares of Old Republic common stock during the first quarter of this year. Consolidated results for the second quarter benefited from the elimination of the approximate $5 million interest charge on that convertible debt. And I would say future quarterly trades will benefit likewise.

The year-over-year comparisons of both pre-and post-tax income figures are affected by, as Al mentioned, lower federal income tax rates as well as the new accounting standard that requires changes in fair value on the equity portfolio to be recorded through the income statement rather than directly in shareholder's equity. In this morning's release, we've included schedules that provide comparisons of pretax and net income amounts as if the 2017 period had followed the same accounting practice.

These schedules demonstrate a significant volatility that has been introduced into reported net income. Pretax income, however, which excludes bothrealized and unrealized investment gains and losses and the effects of the lower tax rates is up 24% for the quarter on a year-over-year comparison and 5% for the year-to-date period for the reasons that have already been given.

So on that note, I will hand the call back to Al for any concluding remarks.

[Al Zucaro, Chairman and Chief Executive Officer]

Okay. So as you’ve just heard we got reasonably good news about our business as we speak. And when we put everything together, well, we feel very, very good about Old Republic situation today. System wide our focus continues on the core, underwriting and related services discipline of each of our businesses. And that has remained and will remain unchanged. That’s an important part of our culture as an underwriting organization.

And also going back to Page 6 of the release, it shows that the consolidated composite ratio of claims and expenses to premiums and fees in this year's first half, is closing in to our 95% long-term bogie for the companies long-tailed mix of business. And most of our business is of the so called long tail nature, whether it's Title Insurance, workers compensation, auto reliability and on and on, those are all long tail coverages and that’s why we need to take a look and manage our business by the way for a long run.

We continue to think that the North American economy which is our playground and we are exclusively focused on it. We don’t full around overseas that it is likely to remain in a very moderate growth mode for the foreseeable future. Our current guess is that GDP will probably grow within a range of 2.5% to 3% and so this year and for the foreseeable future as I say. And in that context, we think that the services we provide to some of the more important industry sectors. And I'll mention Title, I'll mention trucking and I'll mention the workers compensation line and I'll mention the large accounts business that we do at Old Republic that the combination of all that should enable us to grow the consolidated business at a much faster clip than the economy at launch. We think we can do this again on the strength of a very high quality intellectual talent pool that we are fortunate to have in our company. And with that pool married very steadily to a very strong balance sheet, which can see us through good times and bad times. And that strong balance sheet and that talent is what should continue to enable us to compete on a level plane field with any and all covers in the areas in which we are focused and specialized.

So I guess with all of this, I think it's fair to say we're in great shape to drive the business to greater success as we look ahead. So on this note we'll now turn this visit to some of the questions and answers that may be out there, as we promised at the beginning of this visit. So operator, you may as well open it up.

[Operator]

Thank you. [Operator Instructions] We'll now take our first question from Mr. Greg Peters of Raymond James. Your line is open. Please go ahead.

[Greg Peters, Raymond James]

Good afternoon. It sounded like in the background we heard the public service of Greater Chicago, I'm returning from lunch, but maybe I'm just heard something.

[Company Representative]

That's right.

[Company Representative]

It's a routine now.

[Greg Peters, Raymond James]

Yes, well, it's -- I was afraid I was going to miss it again this quarter. So I wanted to focus on the two slides from your supplement slide on number Page 4 and Page 5 for a couple of questions. First on Page 4, and Craig, I know you mentioned, you've talked about a number of line items in this -- on this page in your prepared remarks. I wanted to focus just on the three major lines, the commercial auto workers comp and general liability, and specifically I was looking at the change in premium first half of '18 compared with first half of '17. And in commercial auto, it's up almost 12%, workers comp down 3.5%, general liability up 12.9%, of course, I'm referring to the net premiums earned row. And Craig, in your comments you said rate exposure our new business. And I'm wondering if you could give us some more granular detail around how much is rate, how much is exposure, and how much is new business?

[Craig Smiddy, President]

Sure, Greg. I'll give you a little more color around that. Commercial automobile, which as we indicated in the supplement, consists primarily of trucking business, there is considerable rate in that premium. We're still obtaining rate increases in the high single-digits on commercial auto. On the other hand, as you probably have read, because of the economy, the commercial trucking business is certainly experiencing considerable lift there as well. So the commercial auto it is really a strong combination of rate and exposure and there is new business in that as well. But turning to workers compensation, it's a bit of a different story there. We write workers compensation in support of our other lines. So for instance, we do write it for truckers and we write for aviation and some of the other things that we do. And there too it will experience some lift from the general economy as things pick up and as wages grow. So exposure growth has increased but where the opposite is happening. I'd say opposite from commercial auto is that the decline in premium is really reflective of the decline in rates. There, as I mentioned in my comments, the Bureaus are filing rate decreases in virtually every state. And the only thing to point out with respect, again to those decreases is that they would appear to be justified because the frequency that we're experiencing, the frequency that the industry is experiencing continues to decline considerably and as such certain rates. So workers' compensation is a different story than the commercial auto.

General liability, not much to say there, Greg, it's a combination of all three. And it's, as I mentioned earlier, a smaller component of our overall writings. And we right that usually in support of the other lines. So that's a story of probably a little bit of rate and some exposure growth and little bit of new business.

[Greg Peters, Raymond James]

Perfect. On the workers' comp comment with payrolls increasing, I imagine, with strong employment in the United States. And you said there was a high single digit in trucking in rates on the positive side. Would you characterize workers' compensation rate for you guys being down mid-high single digits, both single digits, where would you put that band as an offset to rising exposures?

[Unidentified Company Representative]

Yes, rates for us are down low single-digits. And if you look at the NCCI rates or any other state bureau rates, you can see that the base rates that they are filing are down probably on average in the high-single digits with that bearings state to state. But we're trying to maintain as much rate as we can on workers' compensation. So therefore, in total, it would be low single-digit decreases in the rate for us.

[Greg Peters, Raymond James]

One other question on your prepared remarks around the general insurance business, around expense ratio guidance for this year, I think of 23 to 25. And on their first half of -- through the first half of 2018, you're definitely coming in above that guidance range. And I know you've reference that in your prepared remarks there is some seasonality. But maybe you could provide us some additional comments about why the expense ratio might be lower in the back half of 2018 compared with the first half of 2018?

[Unidentified Company Representative]

Yes, a combination of a couple of things, Greg. I think there are some expenses that are front loaded for the year and in the first few quarters. And then on the other hand we are trying to achieve expense growth at a lower pace than our overall revenue growth. So a combination of those two things would lead us to believe that we can continue to bring down that expense ratio overtime.

[Greg Peters, Raymond James]

Perfect. Okay. I wanted to throw one question in Mark's direction. So that would be working off Page 5 of your supplement. And I was looking at the reserves to paid loss ratio, I am looking at the history of that ratio with it being as low as 7 to 1 in 2013 and then as high as 9.5 to 1 in 2016. It seems to hovering around the higher end of that range. And I am just curious given the growth in the commercial exposures. What the appropriate level, what the appropriate long-term range should be is because of commercial -- is it at the higher end? Or should we expect this to gradually go back down to the lower end of the range as it was in 2013 and 2014.

[Mark Bilbrey, President of Title]

Greg, thank you. Hi. This is Mark. I’d like to tell you we would go forward back down to the lower. I think growth rates going to balance -- we took balance at 7 and 9 going along. On our commercial side, we have been very blessed in that. We had about a 3% growth in it because so far this year in the commercial side, I’ll see the claims narrowmed is much better than your traditional residential market. But we feel there is a lot of things in the pipeline that haven't quite commune because we're agency centric model. So the lags in their little bit -- We'e are bit I entric model, we've he lags in the little bit before it got to the table.

So, and I am hopeful that number will go down a little bit for. But I couldn’t guarantee that, I got feel pretty comfortable towards that but I think somewhere in between.

[Greg Peters, Raymond James]

Okay, great thanks. And just to close it up here and turn it over to others. Given the new accounting rules where you are taking these unrealized changes in value of your equities security portfolio. I'm running it through your income statement. I am curious if you think it might alter your perspective on your investment allocations on a longer term basis. And that’s my last question.

[Unidentified Company Representative]

No, I don’t think so at all. Again on a portfolio, Greg, its structured too, in fact, align expected maturities and payments of claims and other obligations and when we use the bond portfolio for that primarily. And we look to our stock portfolio as being much more of a liquidity front. Our investment policy, historically, has also been aimed as assuring growth of investment income. And in that we do not count the possibility of unrealized appreciation, though we do welcome it, obviously, but that’s not our stick.

And so from both of those standpoints, we don't believe that the new accounting rule is going to change anything in what we and how we manage our portfolio, how we set expectations for our people from a profit sharing standpoint or from a capital return standpoint. So to us it's fundamentally a non-event. And as I say, it is not part of the equation, which drives the management of our business.

[Operator]

We'll now take our next question. Our next question comes from Mr. Matthew Carletti of JMP Securities. Your line is open. Please go ahead.

[Matthew Carletti, JMP Securities]

Just a couple -- mostly numbers questions, first one is on the mortgage business. You've given us the shareholders equity in the past. Where did that sit at June 30?

[Company Representative]

Refresh my memory call and we around $450 million or their belts.

[Company Representative]

That's in the neighborhood, yes.

[Company Representative]

Yes, $450 million.

[Matthew Carletti, JMP Securities]

Great. And then couple other numbers questions. One is just on, as I look at fee and other income, can you help me think about what's driving the growth there and any seasonality kind of quarter-to-quarter that we should think about?

[Company Representative]

Seasonality is not that critical for us. I mean the business comes in pretty much in the same percentage way, quarter-in-quarter out between the use. So we don't worry and don't pay too much attention to that. I interrupted you before Matt, I wanted to say that with respect to the mortgage guaranty when we say that capital is $450 million or there about, that's a GAAP number. And as you know, there is quite a bit of that capital is not the majority of that capital frozen in to the so called contingency reserve, which you try not, really take out, okay. So we've always going to be careful about what type of number we're talking about, statutory or GAAP, and because the GAAP number can be very misleading for that business.

[Matthew Carletti, JMP Securities]

Right. Okay. Thank you. Last one, probably for Karl, just tax rate on operating income. How should we think about that going forward assuming kind of current mix and everything else more like the second quarter number, which I think was closer to 19% or kind of six months sort of run rate which I think was closer to -- closer to 17%?

[Karl Mueller, Chief Financial Officer]

Yes, I think, when you look at the effective tax rate, the second quarter rate on operating earnings there is a little of 19.3%. So it's probably more in line than the year-to-date number. I think as we discussed last quarter, we had a couple of items that occurred in the first quarter that drove that way down lower than you would normally be. And as a result, the six months to reflect some response to that. So I think there is a second quarter number is probably closer to normal run rate.

[Operator]

And I think our next question from Mr. Gary Ransom with Dowling & Partners. Your line is open. Please go ahead.

[Gary Ransom, Dowling & Partners]

I had a question on the reserve development. I know it was zero in total. But looking across the industry, a lot of other companies have been talking about very large favorable reserve development in workers' comp. I was wondering if you are seeing the same kinds of development made to quarter zero?

[Karl Mueller, Chief Financial Officer]

Yes, Gary, as you might expect there is volatility from one line to another. I would say workers' compensation for the year probably had some slight unfavorable development that was offset to degree provided by some of the other lines, but nothing significant for the 2018 second quarter.

[Unidentified Company Representative]

And also the direct answer to the question, we don’t know where the rest of the industry is coming from. As you know, everybody has different reserving methodologies in terms of loss pick methodology, holding periods and things like that. And therefore what we do is not necessarily the same as anybody else. But we are consistent. And as Karl just said we are experiencing a lot less downdraft in loss reserve developments in comp, in particular, in the last year or so than we were couple of years ago.

[Gary Ransom, Dowling & Partners]

One other little numbers question. I noticed in the corporate line the pretax operating income was higher. There is actually a negative expense in the line that's called corporate, interest and other expenses in that. And I realize I wasn't sure all the things that might be in that line. Could you help us on that?

[Unidentified Company Representative]

Deadline item also includes some consolidated elimination entries. So when you wrap it all together, it's just resulted in a slight negative number.

[Gary Ransom, Dowling & Partners]

Is there any sort of run rate you might consider appropriate for that corporate segment in terms of the bottom line?

[Unidentified Company Representative]

Karl, as you can seek to it, but, I've always felt that that number is too large degree predicated on the difference between external interest costs and the interest costs and the intra system interest costs. And by that, I mean, we've got, let's say in the General Insurance business, we have an interest cost number there, which becomes an interest income number as the holding company level right? And on the right, follow that sales.

[Gary Ransom, Dowling & Partners]

That's just now I get it. Yes, thank you. It's allocated, it's not supports us.

[Unidentified Company Representative]

Correct.

[Operator]

[Operator instructions[. We’ll now take our next question. Our next question comes from Mr. John Deysher of Pinnacle. Your line is open, please go ahead.

[John Deysher, Pinnacle]

Hi, thanks for taking my question. It's just a basic question on the workers comp, perhaps very basic. But why is the frequency declining? It would seem to me in a robust economy where workers or employee that the frequencies would probably be going up, so I'm kind of wondering why if the frequency is declining. Is it risk reduction programs that are put into the front end or why is it declining?

[Unidentified Company Representative]

Sure, I'll try to add a little more color around that. As I mentioned in my earlier comments, if you look at the NCC high information, it is the bureau that does a lot of the statistical analysis on comp. You'll see that those frequency rates are down. And what's driving that is several different components coupled the main ones are indeed safety, as he mentioned. This has been a phenomenon that has been occurring now year-after-year for many, many years and safety continues to improve and as such frequency improves.

Also we actually see an inverse relationship between the economy and the employment rate and frequency and severity of comp. That is when there are jobs that are plentiful and wages that are growing, workers are more inclined to want to keep working. And on the other hand, when a job that scares and wages are declining, workers are less inclined. And therefore less reluctant to make workers' compensation claims.

[Operator]

It appears that there are no further questions at this time. I'd like to turn the conference back to you for any additional or closing remarks.

[Al Zucaro, Chairman and Chief Executive Officer]

Okay. Well, this is Al Zucaro. And I think we as a group and obviously attempted to respond clearly to the questions that had been raised. And we've done what we think is necessary to perhaps shed little more light and color on what we believe is a -- always is a reasonably transparent release. And which speaks to the results of our business and the current financial position of the company. So on that note, we will say farewell until the next time. And again, we appreciate very much your interest in our company. You all have a good afternoon.

[Operator]

That concludes today's conference call.